UKRAINE: FT-ECB Will Not Provide Backstop For EUR140bln 'Reparations Loan'
The FT reported earlier that, according to people familiar with the matter, the ECB has "concluded the EU plan to raise a ‘reparations loan’ backed by frozen Russian assets violated its mandate". With Ukraine's funding needs reaching a critical juncture (it will run out of funds by April 2026 if nothing is provided), there has been increasing pressure within the EU to use EUR140bln of the frozen Russian assets held at Belgium's Euroclear to act as collateral for 'reparations loans' that would be used to fund Ukraine's resistance and reconstruction, and repaid by Russia once the war is over.
- Jorge Liboreiro at Euronews: "The ECB concluded that providing the backstop to Euroclear would amount to "monetary financing", which is prohibited under EU treaties."
- The ECB had previously warned that seizing the frozen Russian assets could damage investor perceptions of the euro as a safe haven asset. It could also potentially destabilise the global financial system if the funds of adversaries were to be seen as 'fair game' for seizure.
- The Belgian gov't has also been a major impediment, arguing that it risks being left on the hook if Russia launches legal challenges against the plan. While the EU and other member states have made noises about providing backstops, these have not reached the level of rigor required by PM Bart De Wever to sign off on any plan.
- Politico reported that while EU members could provide specific guarantees to Belgium, they will not write a 'blank cheque' for guarantees to run beyond the period in which Russia is under EU sanctions.
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AUSSIE 10-YEAR TECHS: (Z5) Returns Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.670 @ 16:16 GMT Oct 31
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures slipped lower Wednesday on the back of hotter-than-expected Australian inflation. This returned prices lower despite nascent signs of a technical recovery as recently as last week. The sustainability of the pullback will be dependent on prices holding above key short-term support at 95.510, the Sep 3 low. Near-term resistance remains 95.780, the Sep 12 high. A clear break of this level signals scope for a continuation higher and opens 95.960, the 76.4% retracement level for the Sep’24 - Nov’24 downleg.
AUSSIE 3-YEAR TECHS: (Z5) Struck by Strong CPI
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.780 - High Jun 26 (cont)
- RES 1: 96.700 - High Sep 12
- PRICE: 96.375 @ 16:13 GMT Oct 31
- SUP 1: 96.280 - Low May 15 (cont.)
- SUP 2: 95.900 - Low Jan 14 (cont.)
- SUP 3: 95.760 - Low 14 Nov ‘24
Having bounced well on the back of the mild US CPI print, Aussie 3-yr futures reversed course Wednesday on strong domestic inflation data containing RBA cut pricing through 2026. This keeps prices well below prior resistance at 96.615, the Sep 12 high, and refocuses attention on 96.280 as the next major support.
FED: Gov Waller: Still Advocating For A December Rate Cut
Gov Waller, one of the FOMC's more prominent doves, makes clear in an appearance on Fox Business that he supports a follow-up rate cut in December. He makes reference to Chair Powell's press conference comment that the Fed could skip a cut at the December meeting due in part to a lack of official government data during the federal shutdown (Powell: “what do you do if you are driving in the fog? You slow down").
- Waller says today: "Right now, we know that the labor market has been weak... We know inflation is going to come back down. Inflation expectations are anchored, and in that world, the standard of central bank wisdom is to look through it and proceed with worrying about the labor market. So in my view, we should just look at what the data is telling us and proceed on policy that way.... So this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do. The fog might tell you to slow down. It doesn't tell you to pull over to the side of the road. You still have to go. You may want to be careful, but it doesn't mean to stop, and ... the right thing to do with policy is to continue cutting."
- This is of particular interest since he appeared to suggest he would have a more cautious outlook on further easing after cutting in October.
